The investment landscape in Asia and the Pacific has become increasingly uncertain and tied to the unfolding of current global and regional political economic risks, such as increased trade tensions, the retreat of multilateralism, and health risks resulting from the COVID-19 pandemic. Together, these risks have disrupted global foreign direct investment (FDI) flows to, from and within Asia and the Pacific.
• Globally, both FDI inflows and outflows started to recover in 2019, with the former growing 30% to $1.5 billion and the latter increasing by 33% to $1.3 billion. However, the COVID-19 pandemic has caused global FDI flows to drop by 49% in the first two quarters of 2020 compared to the same period in 2019.
• Asia-Pacific’s share in global FDI inflows dropped from 45% in 2018 to 35% in 2019, and its share in global FDI outflows decelerated from 52% to 41%. Nonetheless, the region remained the largest source of global outflows for the second year running.
• In 2019, China and Hong Kong, China were the largest FDI recipients attracting 38% of total FDI inflows to the region. Japan was the largest source of investment from the region in 2019, responsible for 42% of regional outward FDI.
• The COVID-19 pandemic has accelerated the downward trend already recorded in recent years in greenfield FDI with the value of announced inbound greenfield investment projects from January to August 2020 dropping by 40% from the average over the same period in 2019. Likewise, outbound greenfield investment project values declined 48% over the same period in 2019.
• Intraregional greenfield investments as a whole have slowed in 2020 due to the pandemic, with announced intraregional greenfield investment values dropping 45% to $35 billion in the January-August 2020 period compared to the same period in 2019.
• FDI is expected to remain low and below pre-crisis levels throughout 2021. The outlook beyond 2021 is highly uncertain and dependent on the duration of the crisis, the effectiveness of policy interventions to stimulate investment and navigate the economic effects of the pandemic, as well as geo-economic tensions. FDI recovery rates are challenging to predict at this stage because they are dependent on the rate of overall socio-economic recovery, and consequently investment levels, within the region and socio-economic rate of recovery from countries outside of the region.
• On the bright side, the recent signing of the Regional Comprehensive Economic Partnership is expected to strengthen flows and lift investment prospects, especially for smaller and least developed countries in the group.
• Beyond this, restoring and increasing FDI in the medium and long-term in the region as whole requires swift, coherent and appropriately sequenced action from policymakers to, inter alia, review, revise and revamp FDI strategies to make them more fit-for-purpose, develop green growth recovery plans with a robust role for FDI, operationalize policy measures to support value-chain linked FDI and boost FDI in the digital economy.